Ronald Clark - Yelp, Inc. Jeremy Stoppelman - Yelp, Inc. Charles C. Baker - Yelp, Inc. Jed Nachman - Yelp, Inc..

Douglas T. Anmuth - JPMorgan Securities LLC Paul Bieber - Credit Suisse Securities (USA) LLC Mark A. May - Citigroup Global Markets, Inc. Christopher David Merwin - Goldman Sachs & Co. LLC Matthew C. Thornton - SunTrust Robinson Humphrey, Inc. Dylan Haber - RBC Capital Markets LLC Brian Nowak - Morgan Stanley & Co.

LLC Ryan Goodman - Bank of America Merrill Lynch Brian P. Fitzgerald - Jefferies LLC Brad Erickson - KeyBanc Capital Markets, Inc. Shweta Khajuria - JMP Securities LLC Deepak Mathivanan - Barclays Capital, Inc. Peter C. Stabler - Wells Fargo Securities LLC Kerry Rice - Needham & Co. LLC.

Good day, ladies and gentlemen. Welcome to Yelp's Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this call may be recorded.

I like to turn the conference over to Ron Clark, Head of Investor Relations. You may begin..

Good afternoon, everyone, and thanks for joining us on Yelp's third quarter 2017 earnings conference call. Joining me today on the call are CEO, Jeremy Stoppelman, and CFO, Lanny Baker. Our Chief Operating Officer, Jed Nachman, will also join us for Q&A. Before we begin, I'll read our Safe Harbor statement.

We'll make certain statements today that are forward-looking, and involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings, as well as our earnings press release, for a more detailed description of the risk factors that may affect our results.

During our call today, we'll discuss adjusted EBITDA, and adjusted EBITDA margin, which are all non-GAAP financial measures.

In our press release issued this afternoon, and our filings with the SEC, each of which are posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, as well as the historical reconciliation of GAAP net income to non-GAAP net income and adjusted EBITDA, and GAAP net income margin to adjusted EBITDA margin.

And with that, I'll turn the call over to Jeremy..

Thanks, Ron, and welcome, everyone. Third quarter financial result reflect solid execution and the overall strength of our business, as we grew revenue by 19%, and adjusted EBITDA by 27% from the same quarter last year.

In our core advertising business, we delivered healthy growth in new accounts, and expanded the sales force by approximately 300 reps from the second quarter. Our client success initiatives also continued the improvement in revenue retention that we achieved in Q2. Our non-advertising businesses performed well in the quarter.

Yelp platform transaction volume increased 40% from last year, and our subscription offerings contributed meaningful incremental revenue, as we integrated and began to scale Yelp Wi-Fi marketing and Nowait. Looking beyond the financials, we achieved another milestone in our drive towards local ubiquity.

In the third quarter, app-unique devices surpassed 30 million on a monthly average basis, growing 21% over the prior year. Finally, at the start of October, we closed the sale of Eat24 and commenced our long-term partnership with Grubhub.

When it is fully implemented, which we are targeting for early next year, we expect the partnership to significantly upgrade the food ordering experience for Yelp users, while improving Yelp's per-order profitability. Just last week, Ad Age reported that Togo's Eateries leads from Yelp converted at 10 times the rate of their online search ads.

In that same article, Discount Tires called Yelp advertising a no-brainer, given our users' high-purchase intent. To help even more business owners experience the power of Yelp's leads, we are improving transparency and removing friction for business owners. Our self-serve sales channel is a great example.

In the third quarter, we on-boarded thousands of new advertisers via self-serve, with convenient tools that allow business owners to set up and manage campaigns themselves. Since the start of the year, we've improved the onboarding flow, which has helped increase self-serve campaign starts by nearly 70% compared to the same period last year.

The flexibility in term lengths, spend levels, and features offered in self-serve have also been well received by business owners. For all advertisers, clients can now customize images and copy for their ads, and we've improved ad click-through rates with an updated algorithm that uses machine learning to better match ad to searches.

We also continued to receive excellent feedback from local service providers who are benefiting from requested quotes, high-quality leads.

In the third quarter, request volume doubled compared to a year ago, and on an annualized basis, consumers generated more than 15 million leads, represent projects worth billions of dollars to the 973,000 local businesses connected to Request a Quote. Response rates also continued to rise, reflecting the value business owners ascribe to these leads.

We are starting to see positive impacts on advertiser satisfaction, particularly in our largest-revenue vertical home and local services, which is growing approximately five percentage points faster than all other revenue categories combined, thanks, in part, to Request a Quote.

For example, Fairfax, a Virginia-based Marines Plumbing is receiving inquiries from highly-motivated consumers through Request a Quote. The 5 star-rated service provider began advertising on Yelp in March of 2015, and is now responding to the dozens of leads it receives each month via Request a Quote within minutes, and with 100% response rate.

They're seeing three quarters of the leads converting to service appointments, and Yelp has quickly become one of their largest lead sources. They've been so pleased with the performance of these ads and leads that they plan to increase their ad budget again this fall, after increasing their spend with us several times in the last year.

I mentioned earlier that we're achieving encouraging results in our revenue retention efforts aimed at existing advertisers. With roughly $800 million in annualized advertising revenue, and a growing subscription revenue stream, investing in client success is an important priority on Yelp's operational roadmap.

During 2016, we expanded our account management team to improve responsiveness, and in 2017, we continue to grow the team and provide more proactive customer outreach. We successfully deployed experienced local sales teams to capture upgrade opportunities, and we're expanding customer care for self-serve advertisers as well.

Within the business owner product experience, we've simplified flows and automated prompts that guide advertisers toward greater success on Yelp. These initiatives and others are starting to deliver results, in terms of customer satisfaction, advertiser retention, and revenue performance.

I'm excited by our team's execution in revenue retention, and we plan to commit additional resources here going forward. In addition to the operational progress we're making, we are purposefully executing our long-term strategy to drive traffic growth and monetization.

To maintain usage momentum, we are building the most complete and convenient offering in restaurants, our most highly trafficked category. We are growing our content base, which includes more than 142 million reviews and nearly as many photos.

We're partnering with Grubhub, the leader in online food ordering, to increase the number of delivery and takeout restaurants available. And we're expanding Yelp Reservations in Nowait, which together seat over 50 million diners at more than 9,000 local businesses in the third quarter.

By leveraging Yelp's consumer reach, product capabilities, business model and sales infrastructure, Yelp Reservations is taking significant share from the market leader in key regions like the San Francisco Bay area, where diners more than doubled compared to last year, and reservation-enabled restaurants grew 40%.

We are pursuing a similar strategy in markets across the country, converting some of the best restaurants into subscribers, including the acclaimed team behind Manhattan's Café China, and China Blue, who also selected Yelp Reservations to power their new Brooklyn outpost, Birds of a Feather.

Our focus on driving usage and engagement in the restaurant category has important implications for monetization. Users who come to us for restaurant information typically migrate to many other categories, including home and local services, where they're generating leads for advertisers through Request a Quote.

These same users are also increasingly transacting on Yelp platform. In summary, we're encouraged by the solid third quarter financial performance. Focused operating execution continues to strengthen Yelp's business fundamentals, which shows up in everything from new account growth to margin improvement, to the quality of our balance sheet.

At the same time, our newer growth initiatives, including Yelp Reservations, Yelp Wi-Fi marketing, and Request a Quote are just beginning to demonstrate their strategic impact on the overall business. We see a long runway of opportunity in front of us, and we believe we have the right strategy to extend our lead in local.

With that, I'll turn it over to Lanny..

Businesses that have been advertising on Yelp for a year or less; and those that have been advertisers for more than a year. Revenue retention improved dramatically after that first year, with many adopting Yelp as part of how they do business, and increasing their budgets through time.

Encouragingly, we've seen retention improve among both groups of advertisers in the last six months and year-over-year, which has the knock-on effect of increasing the mix of the more tenured group, which creates its own benefit to overall retention.

Looking at the factors that improved revenue retention between the third quarter of 2016 and this quarter, reduced cancellation volume is first, followed by up-selling. To achieve these gains, we first added staff then reset account coverage, extended service hours, shortened response times, and made adjustments in pricing and commission schedules.

We have a similar amount of activity on the product side aimed at the same objective. We're encouraged by the progress we've made this year and believe there is opportunity to do better in coming years. Shifting gears, transaction revenue of $118.5 million rose 16% above the third quarter of 2016.

Eat24, where we've generated most of our transaction revenue historically, saw double-digit order volume growth in the third quarter, led by strong gains in order volume originating on Yelp.

I should point out that with the sale of Eat24 and the start of our partnership with Grubhub in the fourth quarter of 2017, the transaction revenue line will look differently going forward. Following the sale, we'll recognize revenue only from the fees we earn for food ordering transactions originating on Yelp under our partnership with Grubhub.

Revenue per order on these transactions will be lower. However, profit per order will be higher under the new structure. Other revenue, which is now primarily subscriptions from businesses using our on-location products tripled year-to-year to $4.3 million in the third quarter.

The acquisitions of Nowait and Turnstyle earlier in 2017 account for just over half of that year-to-year gain, with account growth at Yelp Reservations driving revenue as well. Given that these businesses contribute only a couple percentage points of Yelp's revenue today, it may be easy to overlook their role and potential importance.

Reservations, waitlist, and Wi-Fi connect consumers directly into great local businesses, while also enabling business owners to deepen their connection with customers via Yelp.

These and services like Yelp transaction platform, Cash Back, and even Request a Quote are closing the loop on Yelp and more clearly demonstrating the value that Yelp has to offer to local businesses. We intend to continue to invest wisely in scaling these businesses.

Shifting to expenses, total cost and expenses for the third quarter were $216 million, up 17% from a year earlier.

With expenses growing two percentage points slower than revenue, operating income and adjusted EBITDA margins expanded year-to-year, and we converted roughly 25% of year-to-year revenue growth into an increase in adjusted EBITDA in the quarter.

Cost of revenue was $19 million in the quarter, pushed higher mostly by transaction and processing costs associated with Eat24. Gross margins remain above 90% as of the third quarter and we expect them to stay in the low 90% range going forward. Sales and marketing expenses rose 14% year-to-year to $113 million in the third quarter.

At that level, sales and marketing was just under 51% of revenue, consistent with the second quarter and down by 2.5 percentage points year-to-year. Year-to-date in 2017, the ratio of sales and marketing expenses to total revenue has decreased by 3.7 percentage points versus the same timeframe last year.

That improvement in sales and marketing efficiency has been achieved at the same time that we've grown mobile app users, reduced dependence on third-party traffic, opened new sales channels, added marketing capabilities, and devoted incremental sales resources to launch new product lines.

This is a key facet of our financial strategy; capturing efficiency within established areas in order to increase margins, while investing in new capabilities to unlock future growth. Let me spend a minute on one of those investment areas in particular.

The decision to strengthen Yelp's capabilities in performance marketing was a natural next step, which complements the brand marketing momentum we've seen in 2015 and 2016 and anticipates the increasingly transactional marketplace nature of Yelp's product experience. Here's the nine month progress report.

Year-to-date, we've increased performance marketing spending threefold, investing roughly $29 million to support user acquisition, drive transaction volume, and bring new businesses on to Yelp. We've built a centralized performance marketing team with channel-specific practices for search, social, video, e-mail, and offline marketing.

Within our mobile app user growth, the installation contribution from performance marketing is up nearly 4x versus last year. In business owner acquisition, we just had the best quarter in the company's history on newly-claimed businesses. And marketing has also propelled self-serve growth all year.

To support this, we've reallocated dollars from brand spending to performance marketing and improved overall marketing efficiency in the process. General and administrative expenses grew 7% year-to-year to $26.7 million or 12% of revenue. We realized operating leverage that comes with scale and we're managing these expenses carefully.

Depreciation and amortization expenses were $11 million in the third quarter, or just under 5% of revenue. Stock-based compensation was $25 million and flat with the second quarter of 2017.

As a percentage of revenue, stock-based compensation was down sequentially and year-to-year and we plan to continue steps such as buying back shares to manage dilution arising from Yelp's equity compensation program. Putting the pieces together, operating income was $7 million for the third quarter of 2017, compared to $2 million a year ago.

Net income was $8 million, or $0.09 per share, compared to $2 million and $0.02 per share one year ago. Adjusted EBITDA was $42.8 million for the third quarter of 2017, up 27% from $33.7 million a year ago. Adjusted EBITDA margins for the quarter were 19.2%, compared to 18.1% in the prior year.

The upside in adjusted EBITDA relative to our business outlook range for the quarter came primarily from the quarter's strong revenue retention trend, as well as greater-than-expected efficiency in marketing.

Cash flow from operations was $52 million in the third quarter and $128 million year-to-date, while capital expenditures were $8 million for the quarter and $20 million in the nine months.

At the end of the third quarter, Yelp's balance sheet had no debt and $558 million in cash, cash equivalents and short-term investments, an increase of $43 million during the quarter.

At the closing of the sale of Eat24 in early October, we received another $252 million in cash, with an additional $29 million held in escrow for 18 months for indemnification purposes. Neither amount is reflected on the September ending balance sheet.

We repurchased 185,000 shares of Yelp stock during the third quarter at an aggregate purchase price of about 8 million. We currently have $192 million remaining available under the share repurchase authorization put in place in July, and we expect to continue repurchasing shares from time-to-time as part of our overall capital allocation activity.

Turning to look ahead at the remainder of 2017, we're updating our business outlook to reflect third quarter business trends, as well as the sale of Eat24, which was completed on October 10.

We anticipate fourth quarter revenue in a range of $211 million to $216 million, an increase of 10% at the midpoint of the range from reported fourth quarter 2016 revenue.

Excluding Eat24 from both periods to enhance comparability and to better depict growth expectations for the ongoing businesses, our outlook for fourth quarter revenue growth would be in the high teens year-to-year. For the full-year 2017, our updated business outlook anticipates revenue in the range of $839 million to $844 million.

Our adjusted EBITDA outlook for the fourth quarter is $39 million to $42 million and we're raising our full-year adjusted EBITDA outlook range to $154 million to $157 million, which at the midpoint is 5% higher than we expected three months ago and would represent a 30% increase in adjusted EBITDA for 2017 versus 2016.

Looking beyond the end of this year, we are excited about Yelp's opportunity, our strategy and our position. Yelp has a strong presence across everything in local and traffic continues to expand at double-digit rates, led by an increasingly helpful and popular mobile app.

Consumer and business owner engagement is at record levels and rising, with page views, searches, ad clicks, reviews, reservations, transactions, and quotes all growing faster than overall traffic growth.

That vibrant product experience coupled with solid operating execution and a healthy business model and balance sheet positions Yelp to continue its leadership and further expand the local digital marketplace. With that I turn the call over for your questions..

Thank you. [ Operator Instructions] Our first question comes from the line of Douglas Anmuth of JPMorgan. Your line is now open..

Thanks for taking the question. Maybe two, if I could. Just quickly on Request a Quote, can you just talk about the degree to which you're monetizing thus far? I know it's still early here, but if you can talk about that and kind of the outlook there, as you head into 2018 a little bit.

And then just secondly, your comments were a little quick there, Lanny, I think on Eat24 and the impact on 4Q. Can you just reiterate what you said in terms of the growth and, I guess, if the accounting were the same essentially, would we be back in the full-year guidance that you had previously put out there? Thanks..

Hey, Doug. I'll take the first part of your question there on Request a Quote monetization. So, Request a Quote continues to grow really nicely. We're looking at about 100% year-over-year and so we feel really good about that. That's about 15 million quotes on an annualized run rate.

When we look at those quotes we see about 3 billion in GMV (22:21) that's currently flowing through the Request a Quote platform. So those are really valuable leads, and we see a lot of monetization potential there. And, in fact, right now we're currently realizing about $11 million annualized from the feature directly.

And then we're also seeing five points faster growth in the home and local services category above other categories where we're monetizing. And home and local service itself is now at $240 million annualized run rate. So, overall, doing really well in the home and local services category and Request a Quote is a big part of that story..

Yeah, Doug. Looking at the adjustment to our outlook for the fourth quarter, the change is removing Eat24. So, we had Eat24 in there previously. We will have prospectively our revenue from Yelp-originated transactions that go over to Grubhub and we receive a fee on each one of those completed transactions. That'll start off relatively small.

It should grow in time as we bring on the full inventory of Grubhub restaurants and make them available on Yelp. I think if you were to take the third quarter, fourth quarter and pull out Eat24 from both periods, the growth rate of the underlying yelp business is comparable in that same period. So, no big change in our views and outlook there..

Okay. Thank you both..

Thank you. Our next question comes from the line of Paul Bieber of Credit Suisse. Your line is now open..

Great. Thanks for taking my question. Just a quick follow-up on the Request a Quote question.

Should we think of Request a Quote primarily as a revenue opportunity or is it a – primarily a way to drive attribution for advertisers and lower the churn rates?.

I mean I think it's all of the above. It's a great consumer experience, as well. So, users are already finding their way to Yelp, often primarily for restaurants. And then it's on us to expose them and encourage them to venture out into other categories. And we are seeing that movement.

And so we have, essentially, a zero acquisition cost for users going into these very high-value categories, and Request a Quote is obviously a great way to interact with relevant local businesses, and there is very clear attribution.

So there is a bunch of reasons to be excited about this general functionality, and we're investing because we see a big opportunity there..

Okay, thank you..

Thank you. Our next question comes from the line of Mark May of Citi. Your line is now open..

Thanks. Just one quick question. I noticed that your sales force hiring really picked up nicely in the quarter. I think it was one of the fastest sequential net additions since Q3 of 2015, so for two years.

Am I looking at that data correctly? If so, kind of what changed in the quarter to enable you to do strong hiring in the quarter, and does that provide you a tailwind, not just into Q4, but into 2018? Thanks..

Sure, Mark. This is Jed. I'll take that question. Ultimately, the third quarter tends to be very strong in terms of head count growth for us. We have larger sales classes over the summer to take advantage of college graduates coming out of school and looking for work. We did have a stronger Q3 than anticipated on the hiring side.

And we're also seeing really favorable trends on the retention side within the sales force. So, all that kind of contributed to a really strong quarter there on the hiring side. It's important to note that we're also staffing some of our growing businesses with folks that come out of the sales team as well.

So we were able to do that, while still staffing up the Wi-Fi marketing sales team, as well as the Yelp Reservation sales team. This year we're going to continue to, we're not making any comments what is going to happen in 2018, but we are excited to keep growing the sales team, and in fact will be opening up our Washington, D.C.

office in the first quarter of 2018. And that's really just a way for us to diversify our recruiting centers across the country. So happy with the way we ended on Q3 on head count growth...

Thank you. And our next question comes from the line of Chris Merwin of Goldman Sachs. Your line is now open..

Great, thank you. Just for – another one on Request a Quote.

Can you talk a little bit about how specifically you're monetizing that today, is it mostly advertisers allocating budget from CPC to Request a Quote? Or are you finding they're paying incrementally to generate leads through that product? And then I think in the prepared remarks you gave an example of a home service provider who I think had a conversion of 75% for Request a Quote.

Is that typical for most of your customers, or what would that look like more broadly across the customer base? Thanks..

Hi, Chris. So I'll tackle the monetization question here on Request a Quote. So, yes, currently we're using these as ad opportunities. It's very similar to if you clicked on an ad, if the consumer is sending a quote request to a business, and that would count as a click and that's what's generating that $11 million run rate.

We think there's other ways that we could potentially drive incremental revenue, and so we're continuing to build out and experiment with new ideas in that direction. But nothing to announce right now.

But, even still, I think it's a great way for consumers to interact with businesses, and we're seeing really nice growth in the home and local services category, and some of that very well could be the increased attribution and so forth. But we can't really break that out right now.

And then you had some questions around the conversion rates, and whether that was typical. I don't have data from lots of other businesses. That was just sort of one story that we picked out, but we can certainly look at that in the future..

Got it. Thank you..

Thank you. Our next question comes from the line of Matthew Thornton of SunTrust. Your line is now open..

Good afternoon. Thanks for taking the question, guys. I guess, Lanny, coming back to Eat24, and the transaction, the transaction closed on the October 10, so does that automatically go day one switch over to the new per-order recognition partnership with Grub? And I think your comment there was, that will continue to grow.

It starts small, and it will grow as those Grub restaurants come on to the platform. So is that from day one, and is there any kind of funny revenue recognition kind of stuff going on with that? And then, just secondly, around the EBITDA guidance, obviously very strong for the back half of the year. The implied 4Q is down from 3Q.

Is that just shifting of spend, or is it anything else that might explain that in the fourth quarter? Thanks..

Sure. On Eat24, yes, you're correct. On October 10 when that deal closes and the partnership commences, we are from that point forward, recognizing only on revenue, I'm sorry, on transactions that we send to our partner that are originating on Yelp and going over to Grubhub, we are receiving that partnership royalty per transaction fee.

So that starts right then. There is nothing complicated about that. Over time, number one, the transaction volume within Yelp of food ordering is growing at a 40% plus rate year-over-year today. We will continue to focus on making food ordering availability more and more prominent and visible within Yelp.

And we'll do that while we're adding over – primarily during the first quarter next year the Grubhub restaurant inventory to the available options on Yelp.

So, over time, both between things that we do to elevate the visibility and things that we do with Grubhub to elevate the quality and variety and selection available, that sort of partnership revenue stream is a growth opportunity for us that we're really, really excited about.

On the second question about sort of profitability in the latter part of this year, we brought on a whole bunch of sales people as we showed you in the quarter. And those people take a while to ramp up to productivity. We also are doing things from a marketing perspective to set ourselves up for next year.

I don't think there is any big change in the margins in the fourth quarter versus the third quarter. So, no big shift from one quarter to another. But we are – the Eat24 contribution won't be there in the fourth quarter that was there in the third quarter..

Thank you. Our next question comes from the line of Mark Mahaney of RBC Capital Markets. Your line is now open..

Hi, this is Dylan Haber on behalf of Mark. In terms of Request a Quote lead pricing dynamics, how are you pricing leads right now and what average lead price do you believe you can achieve long term? And then just a follow-up on PAAs, did the results benefit more from a decrease in churn or from an improvement in gross ads. Thank you..

Sure. Hey, Dylan. I'll take the pricing question. So, currently it's treated just like ad inventory. So, it has a CPC price that's competitive. And we think it drives a lot of value and we'll continue to look at that model and see other ways that we can charge more and make more money from these really high value, high conversion leads.

But right now it's just that, inventory..

I think I would just add to what Jeremy said on that question, which is that we talked a little bit about the current run rate of revenue recognition coming through Request a Quote through that pricing dynamic you just described.

We also talked about there being $3 billion kind of project value just within home and local services, which if you think about those numbers in kind of a take rate context, we feel like the long-term monetization opportunity of the business that we're delivering – the project value that we're delivering to local businesses is really significant.

So, we're just getting started from a dynamic there in terms of pricing that Request a Quote volume. On the local advertising front, it is really a combo of both things. We had a very good quarter on account retention.

And when we think about account retention, we really focus – I mean, obviously, we focus on accounts and we're very focused on cancellations and advertisers staying with us. We're equally focused on revenue retention. The business really runs on revenue.

And so probably our successes in upselling wouldn't really reflect a growth in the paying advertising account, but they would reflect a benefit to revenue and to profitability.

So the strength that we saw in the advertising account number this quarter was really a combo of good sales in local, strong sales in self-serve, and a solid job on account retention. And, probably, my point is an even better job on revenue retention..

Great, thank you..

Thank you. Our next question comes from the line of Lloyd Walmsley of Deutsche Bank. Your line is now open..

Hi, this is Chris on for Lloyd. Real quick, back on Request a Quote.

Is the $11 million (33:49) Request a Quote volume, is that largely driven on a per quote rate basis, and what kind of monetization levels are you seeing? Also, could you elaborate on exactly how you guys are leveraging the Request a Quote to do spending in directly in the home and local services vertical? Thanks. (34:04 – 34:37).

We feel like this is a deep oil well that we'll be able to mine in the coming years.

Were there any other parts?.

No, thank you..

Thank you. Our next question comes from the line of Brian Nowak of Morgan Stanley. Your line is now open..

Hi, thanks for taking my questions. I have two. It's a jump-off for Lanny or Jeremy. Could you just – now you improved the margin profile of the business with some smart partnerships in the Eat24 situation.

Can you talk about how you view the long-term incremental margin and incremental earnings power coming out of the business? And Jeremy, as you step back, what do you think of the biggest areas of (35:27 – 35:33).

Brian, are you still there?.

He's disconnected..

Okay. Well, let's take a stab to answer the question, and I think we have the gist of it. I would say from a long-term margin perspective, the context I provided that over the last year and a half, we have fairly steadily taken 40% or so of our revenue growth down to the bottom line. This quarter, on a year-to-year basis, it was about 25%.

What's different in this quarter from where we've been and how does that play out in the future? Remember, we did the acquisitions of Turnstyle, which is now Yelp Wi-Fi marketing and Nowait. Both of those businesses are fairly small today in terms of their revenue, but they are fairly big in terms of the opportunities that we perceive in them.

I'll give you a little bit of context. The sales force that we have today at Wi-Fi is probably about 10 times bigger than the sales force at that product at the time that we acquired it.

So we are making investments in growing that business, and in growing Yelp Reservations, and growing Nowait, all of which are really central to the strategy we have around driving user growth, and a very, very strong presence for Yelp in the restaurant category, which then feeds across the rest of our franchise.

And so, I think there will be times when we're making those investments to grow the business in the future, and there are times, like you've seen in the last year and a half, where you can very clearly see the company flexing the inherent profitability of the business model.

Jeremy, you want to talk about the second part of that question?.

We only got about half of it. I think you may have covered it with talking about bringing users to Yelp through the restaurants.

Restaurant, food, and nightlife, out of the house, using that high frequency to attract users and then monetizing in some of the other categories like home and local service, I think that's what he was getting at is the big picture like how we are putting this all together..

Thank you. Our next question comes from the line of Ryan Goodman of Bank of America, Merrill Lynch. Your line is now open..

Hey guys, thanks for taking the question. I've got two on Eat24.

So, the first one, just in thinking about the potential impact of the model next year, should we, essentially, be peeling out pretty much all of the Eat24-related expenses next year, or is there going to be some sort of reallocation to at least support the business even through the partnership, some marketing budget for that? And then, second question, just with the transaction close, it sounds like it is entirely shifted over to Grubhub in terms of managing now.

Are there any other milestones that you can provide us with, just in terms of maybe timing of ramping incremental restaurants from Grubhub, or anything else that we can kind of keep an eye on from where we're sitting with that?.

Sure. Let me give you some context. We filed an 8K that shows the pro forma impact of Eat24 in 2016, as well as the first six months of 2017. Within those numbers, within the expense base that you see there, there is probably a mid-single digit. Well, there is a mid-single digit millions of dollars that were allocations of Yelp expenses to Eat24.

Those sort of come back to us. Those are part of our corporate operating expenses. They're not all incremental on that business. And then your question was sort of about the marketing activity. I don't think it's such a matter of re-allocating marketing dollars from Eat24.

With those marketing dollars that are sort of directed against Eat24 on a standalone basis. No, I'd say that the marketing activity that we were doing to drive the Eat24 volumes ceases, though the bulk of our prospects going forward are really promoting food ordering on Yelp.

That doesn't require a ton of external marketing activity because the awareness today and the uptake of food ordering on Yelp, as fast as it's growing, is still relatively low. And we think we can do that internally, organically, for quite some time. So, I think, from a marketing perspective, those – that sale – we'll save that money.

In terms of timing, I guess I try to be clear this way and say that there is a transition period where things like customer support, customer service is being handled by a team that now works for Grubhub, but is still housed within Yelp. And over time that team will fully migrate to be part of Grubhub.

That migration will take place in the first half of next year. Let me shift gears and talk about the product side. For Yelp, we expect to have the Grubhub inventory of restaurants available for food ordering on Yelp also in the first half, probably toward the end of the first quarter of 2018.

Grubhub previously discussed a timeframe that I think was the third quarter of next year, at which point they're talking about having Eat24 integrated to their systems. That's from a product perspective and that's sort of separate from our timeframe. Our timeframe will be a little bit shorter than that..

Yes, thank you..

Thank you. And our next question comes from the line of Brian Fitzgerald of Jefferies. Your line is now open..

Thanks, guys. Maybe a question around any unique insights on a regional basis, maybe coming out of the hurricanes and Vegas, et cetera.

Are you seeing the dynamics change with respect to the business as it evolves? And as you rollout formats like Request a Quote or transformational initiatives, like Grub and Eat24, are you noticing any variances in local businesses or any impacts that you're seeing that weren't there before? Or kind of insulation from those types of things because of the way you're evolving the business?.

It's probably more insulations from those things. Yelp has been growing for 13 years now, and there was a time early on where it was sort of looking at city cohorts by city cohorts really made a lot of sense. But the business, as of probably 2.5, 3 years ago is one that is fairly well scaled nationally against national population.

We are stronger in some of the earliest markets, like San Francisco, but generally speaking, there isn't a huge like geographic differences that don't match the U.S. population.

On the storm front, between Houston and Florida and Puerto Rico and fires in California, we did take some proactive steps to reach out to advertisers and pause their campaigns. I can give you some numbers from Houston.

Right in the days after the hurricane hit Houston, we saw search volume for restaurants and everything else in Houston go down by probably 70%-75%. It came back pretty quickly, within a week or so.

But while that was going on, we paused advertising campaigns, just to make sure that we weren't doing anything crazy with advertisers who many of them were not in business at that time.

If you total up the effect of that across those three or four different situations during the quarter, it's probably hard to estimate, but it might be like $0.5 million to $1 million impact on revenue over the second half of this year. Some of that would have occurred in the third quarter. Some of that'll occur in the fourth quarter.

But that is sort of regular course of business..

Got it. Thanks. Very helpful..

Thank you. And our next question comes from the line of Brad Erickson of KeyBanc Capital. Your line is now open..

Hi, thanks. Just wanted to circle back on the Q4 EBITDA guide.

I guess when you think about your methodology on formulating that guidance, did you use the same sort of volatile churn assumptions or potential for volatile churn, much like you did in Q2 and Q3 after the higher churn you saw in Q1, or does this guidance assume a decidedly sort of better churn assumption?.

I think going forward, we've made what we think are some sustainable improvements in our performance on account and revenue retention. We tried to share with you today a pretty long list and tried to be pretty descriptive about sort of where the improvements have come from.

I don't know that every single month will be as good as the single best month that we had during the third quarter. But we've made some real progress certainly from where we were a year ago and where we were in the first quarter this year, and that's included in our sort of outlook that we're providing to investors going forward. Yes..

Got it. And then just secondarily, and I apologize if this has already been answered, I hopped on late.

But in removing Eat24 from your Q4 EBITDA guide, but, obviously, adding back in the affiliate fees that Grub pays you, is there a net positive effect factored into your guidance, and any sort of magnitudes of contribution that you can provide around that would be great. Thanks..

From a profitability perspective, in the short run, there isn't a big positive there because we also have retained some of the engineering teams from Eat24, as well as a few of the marketing people from Eat24, who will be staying on with Yelp in the near term. So, sort of initially, it's kind of a wash from a profitability perspective..

That's great. Thanks..

Thank you. And our next question comes from the line of Ron Josey of JMP Securities. Your line is now open..

Hi, this is Shweta for Ron. You guys mentioned self-serve starts improved by 70%. Can you talk about the improvements that drove that growth again? Thanks..

Sure. So this is Jed speaking. Self-serve channel continues to be a strong avenue for us in terms of new acquisition of local businesses. 50% year-over-year growth, it contributed meaningfully to our local advertising account number.

A lot was organic and some of that was paid, but we're seeing really healthy trends on kind of the top of the funnel on the self-serve side, and see a lot of room to grow in that channel moving forward. So nothing that changed dramatically over the quarter but continue to see really good progress there..

Thanks..

Thank you. Our next question comes from the line of Deepak Mathivanan of Barclays. Your line is now open..

Hey guys, thanks for taking the questions. Two questions for me. So first, somewhat related to that, I think you called out national group 20% and self-serve 50%. Can you talk about how big each of these buckets currently are to help us sight the business? And then the second one, on the desktop unique visitor growth, it got better during the quarter.

I was wondering, if there is anything incrementally beneficial during this quarter similar to last quarter or is it just a (46:41) last year?.

Sure. On the first one, on the mix of advertising revenue, it's roughly 70% coming from our local sales team, 20% coming from national, and about 10% coming from self-serve today..

And on the desktop uniques question, nothing really new and exciting there. Our traffic growth in that channel is largely organic or virtually all organic traffic, and so there's fluctuations due to Google algorithmic changes, as well as content that we have available, and SEO work, so nothing specific to call out there..

Okay. Thanks, guys..

Thank you..

Thank you. And our next question from Peter Stabler of Wells Fargo Securities. Your line is now open..

Thanks for taking the questions. A couple for Jed, if I could. And I apologize, you guys were cutting out a little bit during the prepared remarks. So sorry if you covered this already. But Jed, wondering if you could update us on the core Yelp CBC ad platform on the self-serve basis.

What kind of improvements you guys are rolling out, what kind of feature sets might be driving traction for local and national advertisers? I think, last quarter, you called out the roadmap for offering some new features for national marketers. Wondering if you could touch on that a bit.

And then secondly, Lanny, you mentioned the – Lanny or Jed, you mentioned the Turnstyle acquisition and Yelp Wi-Fi. Has this been productized yet? Is this out in the market? What kind of feedback are you getting from advertisers on that product and what kind of adoption? Anything you could share there would be helpful. Thanks so much..

Sure. I'll take the first part in terms of the local core ad product roadmap. As we mentioned in the prepared remarks, we released a new algorithm based on machine learning to have a more targeted ad delivery solution, and we've seen really nice early results there, and we'll continue to work on that ad targeting.

On the national side, we're seeing a lot of traction with our Yelp Local Audiences product, which is effectively the ability to kind of package up Yelp data and target users off of Yelp.

Some nice initial traction there, working a lot with developing our channel partner program and specific tools that they need in order to come in and buy Yelp inventory, so a lot of stuff going on, on the ad product side, and in terms of Turnstyle, which we're now calling Yelp Wi-Fi market, Jeremy, why don't you take that one?.

Yes, sure. So, Yelp Wi-Fi marketing is going well. We've got north of 4,000 customers at this point, paying customers. We've got an inbound sales effort as well as an outbound sales effort. We also see millions of users logging in to these Wi-Fi hotspots. And so it is productized. It's out there in the marketplace. And we're growing it as fast as we can..

Yeah, I guess I would add one more thing. Certainly attribution is an area that we are looking at very, very seriously and have made some really nice steps in that direction. You look at kind of our core attribution to-date and it's been phone calls, website clicks, maps and directions. And those continue to kind of bear fruit.

But we really do see products like Yelp Res and Nowait and Wi-Fi marketing and Request a Quote as kind of the next leg in terms of attribution and be kind of tieback ad spend to our advertisers. And so you look at 50 million rate on Request a Quote, that's having real, real impact in terms of closing that loop for the local advertisers..

Thanks, guys..

Thank you. And our next question comes from the line of Kerry Rice of Needham. Your line is now open..

Thanks a lot. Thinking about some of your other large categories, beauty and fitness and health, you talked a lot about Yelp Reservations, Nowait and Request a Quote.

Are those applicable – can you leverage those into beauty and fitness? I just noticed that it looked like there was still some third-party reservation platforms on there to help monetize those categories. And then the second question is, any update on Cash Back? It seems like it's getting some good traction.

Any early learnings that you can shed some light on with that? Thanks..

Sure. This is Jeremy. So, talking specifically about the health, beauty, and fitness and maybe Active Life. Our approach there has really been to open up to other companies, third parties that can tap into the consumer base and book appointments et cetera through the Yelp platform. So, that's been our approach there and it's going well.

We continue to have conversations with lots of different providers. Could a Yelp Reservations be adapted to a different vertical? It's possible. It's not really a focus, certainly, in the near term. And what we've – in our efforts in the restaurant vertical we've seen that – each one is very specialized.

And you actually see that in the marketplace where in each vertical, there tends to be a different scheduling provider, rather than one that goes across a broad swath of categories. And so as a result I suspect that there will be specialists in each category. But we'll keep you posted on developments there.

And then for Yelp Cash Back, I'd say it's been – it continues to be something that we're testing and learning from. We do have thousands of different businesses that are offering Cash Back, several thousand plus at this point through a partner or a couple of partners that we've got.

And on the consumer side, we have seen really nice adoption of signing up for the Yelp Cash Back program. But it's really too early to say where this is all going. We think it still has a lot of promise and we're continuing to invest there..

All right. Thank you..

Thank you. And our last question comes from the line of Darren Aftahi of ROTH Capital Partners. Your line is now open..

Hi, guys. Thanks for taking my question. This is Dylan (52:59) on for Darren. You saw some stronger growth with the traffic that came through some of the mobile uniques.

And I was curious how much you could attribute some of that towards the integration of Nowait and Turnstyle or to Yelp Wi-Fi? Or was some of it related to just better content with advertising and marketing? Thank you..

Hi, Dylan (53:22), this is Jeremy. So, yeah, we saw nice app user growth and we're encouraged and excited about that. I'd say largely driven by organic sources. We've also been developing a lot of performance marketing muscle, and we have some carrier relationships that are bearing fruits.

So, between all those things, I think it lead to really nice growth numbers there. I wouldn't say Yelp Res, Wi-Fi were hugely material in driving app uniques at this point..

Got it.

And then on the sales force hiring, I think, like local revenue per sales productivity was down a little bit quarter-on-quarter, was that just related to having a better hiring quarter than you expected and those new hires taking a little bit time to ramp?.

Yeah, we were actually really pleased with the sales force productivity during the quarter. We were right in line with historical averages in terms of production.

Clearly, there is a mix shift of given the hiring we did over the summer and I think some of those larger classes may take a little bit of time to ramp up, there's going to be a little bit of a drag until those folks catch up, but overall was in line on a 10-year basis for productivity..

Great, thank you..

Thank you. And that is all the time we have for questions. Ladies and gentlemen, thank you for participating in today's conference. That does conclude today program. You may all disconnect. Everyone have a great day..